Celebrity credit card lessons: The famous who became not so rich
If fame and fortune were all we needed to be happy and secure, then there wouldn't be so many celebrities fighting off creditors.
Many ofus think that if we had the kind of money that celebrities have, we'd do abetter job of managing our credit card debt. But if you have a credit limit of,say, a million dollars, you might have trouble reining in your spending, too.
Here'sa look at how celebrities Tori Spelling, Ed McMahon, Kim Kardashian and Courtney love joined the ranks of those with those who got into credit card debt. And thereare some lessons here, too, for us regular folks.
ToriSpelling: Thedaughter of late billionaire, Aaron Spelling, and author of "sTori Telling,"revealed in a "20/20" interview that she had hundreds of thousands ofdollars in credit card debt when her TV show, "Beverly Hills 90210," went off the air. She blamed the debt on her "badshopping habits." Spelling says she got used to having a hit TV show and spendinga lot of money. To her credit (no pun intended), she went back to work and gotout of debt on her own.
Lessonsfor the rest of us: Whenthings are going well, don't rack up debt just because you can. You may have ahigh-paying job today, but resist the urge to whip out your card and live thehigh life. There's no guarantee that you'll have the same job when the billcomes due.
Butthere's a reason why it's easy to get caught up in "bad shopping habits."Spending money on something you want activates the pleasure center in thebrain," says Dr. David Krueger, author of "The Secret Language of Money.""Spending creates pleasure, but using a credit card also creates aseparation between the spending part and the payment part," says Krueger.So it's easy to get into a cycle of spending because you're not thinking aboutthe other end of the sale -- the part where you get your statement and owe themoney.
To endthe spending cycle, it's important to take responsibility for your debt. Otherwise,change is difficult. "Spelling was able to get out of debt because she decidednot to be in debt any longer," says Justin Krane, a financial plannerin Los Angeles.
EdMcMahon: BeforeMcMahon died in June 2009, he was deeply in debt. He faced foreclosure on hishome -- he was $622,000 in arrears and defaulted on $4.8 million in mortgage loans --and reports also showed that McMahon and his wife had a huge amount of creditcard debt. (Reports ranged from $180,000 to $750,000.) In an interview with Larry King, McMahon said it happened because he spent more than he made.
Lessonsfor the rest of us:Most of us would have to do plenty of shopping to rack up that much credit carddebt. But when you have a huge limit and your spouse is also spending, thingscan get out of hand in a hurry.
Whencouples approach finances, there's a power aspect involved. "Whether youmake $20,000 or $200,000, decide that each partner gets to be autonomous over aspecific amount, say $20 per week. Then sit down and communicate about wherethe family needs to go from a financial standpoint," says financial planner Ken Clark, author of "The Complete Idiot's Guide toGetting Out of Debt." When you each have a small amount of "madmoney," these talks are easier to swallow. And be sure that you agree onwhat card you'll use for these "mad money" purchases.
KimKardashian: Kardashianwas hired as a "stylist" for R&B singer Brandy Norwood. Norwood'smother allegedly gave Kardashian her American Express card and permission tomake one purchase. According to news reports, Kardashian made a purchase, butthen shared the card with her sisters, ringing up more than $120,000 in creditcard debt. Kardashian claims she had permission to use the card for more thanone purchase.
Lessonsfor the rest of us: TheKardashian and Norwoodcase has since been dismissed by the courts, but the basic credit card lessonsof being responsible with plastic -- especially other people's plastic -- is at the heartof the matter. "This is an example of why it's important to teach yourkids about credit cards and the value of money," says Krane. "Kidswho understand that are better equipped as adults to manage their moneyresponsibly."
Andwhat about handing your card over to someone else? This is never a good idea. Andnot just because you can't control their spending. "You shouldn't trustothers with your card. When it comes to identity theft, it's often someone you know,"says Clark.
CourtneyLove: American Express was suing Love for failure to pay offher $350,000 bill on her gold card earlier this year. Love said she wouldn'tpay because the charges were fraudulent. According to her attorney, Love believedher Social Security number was stolen, and she hired a private investigator to trackdown the perpetrators.
Lessonsfor the rest of us:
"Celebritiesand their high-powered attorneys need to understand that when it comes toresponsibly using credit, the same rules apply to them as to the rest ofus. They need to promptly open their credit card statements each month andcheck to make sure that all the transactions were authorized. If not, theyshould immediately report any inaccuracy to the issuer, and if identity theftis suspected, consider putting a freeze on their credit report. Delaying adispute only complicates things, something I'm sure Courtney Love would attestto," said Gail Cunningham, spokeswoman for the National Foundation for CreditCounseling.
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